Despite having no formal disaster recovery plan, a Memphis firm bounced back in two days after experiencing a disastrous fire. Their experience provides some lessons on how to be prepared to react so quickly.

In March 2002, Memphis-based Watkins Uiberall, PLLC suffered a disastrous fire. The fire made their business quarters uninhabitable for some time. Despite this, the firm was functioning normally within 48 hours. Management’s quick reaction helped get the firm back into operation.

The firm had no formal disaster plan. Intuitively, however, management had taken some basic steps to prepare for contingencies, which helped them to move forward quickly after the fire.

Watkins Uiberall is one of the three largest local CPA firms in Memphis. Its total staff numbers approximately 60 employees, including nine partners. In addition to accounting and audit services, the firm provides business services, consulting, pension planning, and tax services.

At the time of the fire, Watkins Uiberall occupied the first and second floors of a four-story building. The fire resulted from arson. It was set on the third and fourth floors in four different locations.

The third and fourth floors were pretty much destroyed. On the first and second floors, Watkins Uiberall experienced water and smoke damage. A few files got wet, many had smoke in them, but none was destroyed. Most of the copiers were destroyed and desks, other furniture, and various artworks were damaged and needed to be repaired and stored. Carpet and wallpaper had to be replaced and the ceiling had to be restored completely.

The fire occurred on a Sunday, a day on which firm members frequently work, especially during the tax season. Partner Michael D. Uiberall had left the building that day at 4 P. M. At the time the fire started, three Watkins Uiberall people were still in the office. However, no one was hurt in the fire.

At about 6:30 Sunday night, one of Uiberall’s partners called to tell him that the building was on fire. Five minutes later, Uiberall was back to the office building.

A clear chain of command

Uiberall says, “The most important thing when you have a fire—or any disaster—is to have a chain of command. By 9 P.M., it was obvious we could not get into the building the next day. The damage was heavy. I could not contact our managing partner Bill Watkins. Since I was second in charge, I took over.” With a chain of command, it is clear to all who can make the decisions and direct the steps needed to recover.

The second most important thing is to have a list of employee phone numbers stored off premises, Uiberall says. Because this list was available, he called some key partners and asked them to call other partners to tell them about the fire and that they would be contacted the next morning about where to meet. Staff who were working out of the office were told to continue doing so, and that they would be contacted the next afternoon. Within an hour, all 60 firm members either had been directly contacted or messages had been left for them.

Most guidance on developing a formal disaster recovery plan recommends that the first step is to assess risk. This risk assessment involves determining not only what disaster could occur, but also its impact on the firm. Watkins Uiberall had done that, if not formally. For a CPA firm, the greatest risks in any disaster are the loss of staff and loss of data and information needed to serve clients. The firm’s maintaining a list of employees’ phone numbers off premises allowed them not only to contact employees but also to determine their whereabouts.

Finding new space

Before leaving about 10 P.M. Sunday night, Uiberall ordered two large portable offices to be delivered within 48 hours. The supplier confirmed that the portables were available in town. The plan was to locate the portables in the parking lot of the Jewish Community Center next door. Uiberall is a former officer of and involved with the Center, so he was confident the parking lot would be available.

The next morning at 7 A.M., Uiberall stopped at the building on his way to meet with managing partner Bill Watkins. In the clear light of day, it was obvious that they would need more than a week or two off premises, so he canceled the order for the portable buildings. When he met with Watkins, Bill decided that money was not an issue.“We decided that we’d worry about that later,” Uiberall said, “so another important thing is, you’ve got to be financially able not to worry about your insurance.”

Bill instructed the phone company to switch calls to his house and sent the secretary there. By 9:30 A.M., she was fielding phone calls forwarded to the line at his house.

Immediately, the partners set out to get office space, furniture, and computers. Because of a soft commercial real estate market, a lot of space was available. By 5 P.M. Monday, Bill Watkins had secured space. After looking at ten good locations, they settled on a place with 11,000 square feet. Although it would be cramped it met all other requirements. It was fully wired for phones and computers, including a T1 line to the building.

“Another requirement for a quick recovery is to have confidence and trust in management,” Uiberall says. “We had gotten a call about a space that looked pretty good. When we met with the partners at 2 P. M., Bill Watkins asked who wanted to go to look at space. Nobody wanted to take the time. We were all busy, each of us dealing with our own crises.”

By 8 A.M. the next morning, Watkins and Uiberall reviewed the lease. One major concern was that, as with many of the new class A buildings, they were required to pay for utilities used after hours, which could easily cost $1,500 a week. “The insurance company told us they would pay for it,” Uiberall says. “We weren’t sure but we signed the lease and told the furniture company to make their delivery Tuesday night.”

Offsite backup

To recover from disaster, “One of the most important things,” Uiberall says, “is off-site data backup, which we had although we did not have it for Saturday and Sunday.” In a risk assessment, a CPA firm, of course, would give very high priority to client information and data. Watkins Uiberall had to jump one hurdle to access their data. The fire marshal secured the building (now a crime scene) and would not let anyone in. All Watkins Uiberall wanted was to get a file server. Eventually, they gained unencumbered access.

Watkins Uiberall lost no records, which reduced the impact of the disaster. Uiberall said, “In the next two years, we’ll go to paperless audits and that will reduce that issue significantly. Most CPA firms in the next three years will use some imaging process. If you just have normal working paper files, I don’t know what you can do to replace them, even with insurance.”

At 3 P.M., staff met at the new space. They retrieved their personal things and their computers—most of which still worked, though covered with soot. Uiberall said, “We felt that loading software onto rented computers would take a lot of time; the best route was to use theirs.”

By 6 P.M., staff had brought their computers over, and rented furniture was being moved in. The phone company, which is a client, got the phones and had the internal lines working the next morning, but not the external line. By 1:30 A.M., the IT systems were up and running internally and completely.

At 8 A.M. Wednesday, Uiberall was at his desk. “We were functioning, not well, but we were functioning.” By about noon on Thursday, the phones and computers were up and running externally. It took time for the T1 line to be hooked up. Fortunately, another firm in the building allowed them to tie into theirs in the basement.

Keeping client contact

With minor exceptions, the firm made no effort to contact the clients. If they didn’t know about the fire, there was no need to tell them. If clients called, and several did, they got through with little difficulty. They were quickly told that no files were lost. Appointments on Monday and Tuesday were either canceled or clients were sent to partners’ houses. “Not the best environment,” Uiberall said, “but it accomplished the goal.”

If people asked Uiberall what the experience was like, he would say, “It was miserable. Putting it in perspective, however, considering September 11 and the thousands of lives lost, files gone forever, and offices gone, we lost nothing. No one was hurt, and no files were lost. It was just inconvenient.” The inconvenience was working in space that wasn’t set up for normal firm operations. For example, in the firm’s present space, a file room, a processing room, and clerical people are all in one area, so when a file is needed, or someone is needed to get coffee or something for a client, or find something, a partner can dial one number and reach someone nine times out of ten. In the temporary space, these functions were in four different locations. “I would call the receptionist and tell her to get me something,” Uiberall said, “Of course, during tax season, she’d be frustrated because the phone was ringing off the hook.”

Star quality staff

“Our staff was stellar—they were unbelievable, unbelievable,” Uiberall says. “Their attitude was, ‘Do what it takes to get it done.’ I didn’t hear one complaint. Our people, administrative and accounting staff, all acted like professionals. But it was tough.”

The disaster did cause the firm staff to have significant downtime. Given that 40 of the 60 employees who normally work ten hours a day were not working for two days, there was 800 hours of down time. Uiberall says, “You can’t make up 800 hours in March. I’m not saying we didn’t do it. We did. But it’s blood money in terms of what it takes out of you.”

About having a formal disaster recovery plan, Uiberall says, “A plan isn’t much different from not having a plan.” His comment underscores the need to test formal recovery plans frequently. “You can do a lot of research about where furniture or computers can be rented, but who knows whether those companies will be in business three years from now. So as long as you have somebody’s home and the yellow pages, you have a number of options.”

FYI

Regulators Expect Financial Planners to Implement Disaster Recovery Plans

According to Financial Planning interactive, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) have begun sending out audit deficiency letters to broker-dealers and investment advisers that lack adequate disaster recovery plans. A NASD rule governing “business continuity plans” for broker-dealers could be in place this year. An SEC rule for investment advisers is expected to come later. To learn more about the SEC proposal, go to http://www.financial-planning.com/pubs/fpi/20030404100.html.